It is not the first time Italian prosecutors have investigated the bank, but probes are extremely rare, he said.

Another Italian bank alerted Bank of Italy investigators to two Vatican Bank transactions that did not appear to comply with anti-money laundering requirements, the Bank of Italy said Tuesday.

When Bank of Italy investigators told legal authorities about the transactions, they were told that judicial authorities were already investigating the Vatican Bank, a source close to the investigation said.

The Vatican said Tuesday that it is "perplexed and baffled" by the public prosecutor's actions and that the Holy See aims for "complete transparency" in its financial operations.

The Vatican said it has "full trust" in Ettore Tedeschi, the head of the bank, which is officially known as the Istituto per le Opere di Religione.

The Vatican Bank is "the most secret bank in the world," money laundering expert Jeffrey Robinson said Tuesday.

There is no way to find out how much money it controls, he said.

The Vatican's sources of income include its vast real estate holdings, explained Robinson, author of "The Laundrymen."

"They are huge, huge landholders," he said.

The Bank of Italy investigation was prompted by two wire transfers that the Vatican Bank asked Credito Artigiano to carry out, the Bank of Italy said.

The Vatican Bank did not provide enough information about the transfers -- one for 20 million euros (about $26 million) and one for 3 million euros (about $4 million) -- to comply with the law, prompting the Bank of Italy to suspend them automatically, it said.

It is not entirely clear how much legal authority Italian officials have over the Vatican Bank, since the Vatican is technically a sovereign state.

They had the power to seize the money and stop the transactions because they took place on Italian soil, said Rossi, the prosecutor.

An effort by Holocaust survivors to sue the Vatican Bank in the United States failed in 2009 when a U.S. court ruled that the Vatican Bank had "sovereign immunity" and was not subject to lawsuits filed in the United States.

A lawsuit against related entities is still in court.

The Vatican Bank was created by an order of the pope "to carry on activities that are for pious causes," according to expert testimony related to the Holocaust suit.

It accepts deposits only from top Catholic Church officials and entities, Settimio Caridi testified in U.S. District Court in 2006.

It uses its funds "for designated pious purposes" and is "an autonomous pious foundation," he said.

Caridi, a top Italian legal scholar who was called to testify by Vatican lawyers, said the bank was an integral part of the Vatican, calling it a "central entity under the oversight of the Holy See."

It is ultimately overseen by a commission of five cardinals -- the top position in the Vatican hierarchy below the pope -- which is headed by the Vatican secretary of state.

The Vatican Bank is subject to particularly stringent anti-money laundering regulations because Italian law does not consider it to be operating within the European Union.

It must supply more detailed information about transactions than European Union banks have to give.